ANNUAL REPORT 2013 PROFI CREDIT Bulgaria EOODPROFI CREDIT Bulgaria EOOD 3 CONTENTS 1. THE PROFIREAL GROUP 4 2. LETTER FROM THE CHIEF EXECUTIVE OFFICER 7 3. CHARACTERISTICS OF PROFI

ANNUAL REPORT

2013

PROFI CREDIT Bulgaria EOOD

BASIC ECONOMICS FACTS OF PROFI CREDIT BULGARIA EOOD.

2013 2012 2011

Брой предоствени заеми 14 530 12 998 10 797 Number of loans provided Номинална стойност на предоставените заеми (в хил. лв.)* 64 471 52 790 41 745

Nominal value of loans provided (in TBGN)*

Общо платени заеми (в хил. лв.) 21 735 16 971 13 694

Disbursed in total (in TBGN)

Заем за служители - дял в общата продукция 100% 100% 100%

Credit for employees - share in total production

Бизнес кредити - дял в общата продукция 0% 0% 0%

Loans for businessmen - share in total production

Човешки ресурси Human Resources

Общ брой кредитни експерти 703 724 631

Number of external credit advisors

Общ брой инкасатори 60 75 80 Number of external collectors Общ брой служители 132 108 106 Number of employees Финансови показатели (в хил. лв.)

Financial Indicators (in TBGN)

Общо активи 52 580 40 993 29 566 Total assets Вземания по предоставени заеми на клиенти 50 255 39 351 28 763

Receivables from provided loans to clients

Общо приходи 29 251 23 757 15 675 Total revenues Общо разходи 25 196 23 324 19 024 Total costs Печалба/загуба преди данъци 4 055 433 -3 349 Profit/Loss before taxation Отсрочен данък 3 5 Deferred tax Нетна печалба/загуба 4 055 436 -3 344 Profit/Loss after taxation

* nominal value of provided loans consists of disbursed amount and future interest revenue


3

CONTENTS

1. THE PROFIREAL GROUP 4

2. LETTER FROM THE CHIEF EXECUTIVE OFFICER 7

3. CHARACTERISTICS OF PROFI CREDIT BULGARIA 9

3.1. COMPANY BODIES 9

3.2. COMPANY PROFILE 11

3.3. PRODUCT OFFER 12

3.4. BUSINESS RESULTS 15

3.5. BUSINESS NETWORK 17

3.6. EMPLOYEES 18

4. REPORT OF THE BOARD OF DIRECTORS 21

4.1. GENERAL INFORMATION 21

4.2. REVIEW OF THE ACTIVITY 21

4.3. SIGNIFICANT EVENTS OCCURED AFTER THE DATA OF THE FINANCIAL STATEMENTS 27

4.4. FUTURE DEVELOPMENT OF THE COMPANY 27

4.5. DEVELOPMENT AND RESEARCH ACTIVITIES 28

4.6. DESCRIPTION OF THE SIGNIFICANT RISKS TO THE COMPANY 28

4.7. TOTAL REMUNERATIONS RECEIVED BY MANAGEMENT DURING THE YEAR 30

4.8. PARTICIPATION OF MANAGING DIRECTORS IN OTHER COMPANIES 31

5. INDEPENDENT AUDITOR’S REPORT 32

6. FINANCIAL STATEMENTS 35

6.1. STATEMENT OF COMPREHENSIVE INCOME 35

6.2. STATEMENT OF FINANCIAL POSITION 36

6.3. CASH FLOW STATEMENT 37

6.4. STATEMENT OF CHANGES IN EQUITY 38

6.5. NOTES TO THE FINANCIAL STATEMENTS 39

7. CONTACTS 72


4

1. THE PROFIREAL GROUP

The PROFIREAL Group is a transnational financial group which operates on the financial

markets of Central and Eastern Europe. The group is one of the most prominent providers of

loans and credits in the Czech Republic, Slovakia, Poland, Bulgaria and newly in Russia. The

PROFIREAL Group consists of two divisions. The companies belonging in the PROFI

CREDIT division operate in the area of financial loans and credits, while the companies

falling under the PROFI INVESTMENT division deal with development of new investment

projects. Until the January 2014 the group also consisted of division PROFIDEBT that

operated in purchase and collection of receivables.

PROFIREAL Group SE with registered office in the Netherlands is the parent company of the

group. The group has been providing financial loans and credits since the year 2000, when it

started this project in the Czech Republic and Slovakia. Throughout it’s time in business

PROFI CREDIT has succeeded in providing more than 800 000 loans and credits. The

strongest position belongs to the division in the Czech Republic, which also achieves the

highest profitability. The share of the Czech Republic of the total volume of provided loans

and credits is 44 %.

The amount of provided loans and credits by division PROFI CREDIT achieved in 2013 year

to year growth 40%. This result was mainly supported by growth in PROFI CREDIT Poland

about 50%, PROFI CREDIT Czech about 22% and the division company in Slovakia

reaching 19% and Bulgaria achieved growth almost 23%. Nominal value of provided loans

and credits by division PROFI CREDIT almost reached amount 285 million €.

One of the main priorities for all companies of PROFIREAL Group is also the quality of the

client’s portfolio. The group operationally reacts to economic states in particular countries

and adapts its business, mainly risk management to actual situation.


5

PROFIREAL Group focuses on countries of Central and Eastern Europe.

The mission of the recently created PROFI INVESTMENT division is to support business

operations of the PROFIREAL Group. PROFI INVESTMENT's main tasks include seeking

investment opportunities and high-potential projects on both international and local scale. The

firm not only acquires stakes in projects that are already under way, are established, and need

a partner with a strong capital backing, but also offers startup capital for new ventures.

The portfolio of the division PROFI INVESTMENT includes the company

PROFIDEBT Slovakia, s.r.o.

The goal of PROFIREAL Group is develop the current activities and permanently adjust them

to the economic situation in the individual countries. The main emphasis will be placed on

quality risk management, on the optimization of all processes inside the individual group

companies, cost savings, and maintaining the shares in the market segment.


6

PROFIREAL Group Structure


7

2. LETTER FROM THE CHIEF EXECUTIVE OFFICER

Dear Ladies and Gentlemen,

Dear Partners,

The flashback of the past 2013 shows that we have succeeded to keep the leading position on

the market of non-bank financial institutions, despite the challenging economic situation.

Moreover, we have expanded our sales network, we have found new offices and new job

opportunities, we have expanded our product and client portfolio. In short we are continuing

our development, and I will assure you that this trend will continue in the future.

It has been seven years till now, which we have dedicated to the care of our customers. We

are focused on their needs and we continue observing the principle of responsible lending and

granting loans taking into consideration our customers’ abilities to repay them, we have good

customer service quality and we have the flexibility of our product, accuracy and precision of

the lending process and clear, transparent lending conditions.

Behind the good results of the company it stands the hard work of the entire team of PROFI

CREDIT Bulgaria.

I believe that the success of the company is mainly due to the efforts of the all employees and

collaborators, due to their dedicated time and attention to our clients and business.

Thank you all for your dedication to the mission to be of service to our clients and I believe

together we will continue to manage successfully our business in the future.

I want to thank also to our customers and partners, and to assure them that in the face of

PROFI CREDIT Bulgaria they shall have a loyal and safe partner.


8

Zdravko Raychev Chief Executive Officer – PROFI CREDIT Bulgaria EOO D


9

3. CHARACTERISTICS OF PROFI CREDIT BULGARIA

3.1. Company Bodies

Petr Vrba Statutory Executive

Svetoslav Nikolov Statutory Executive

Svetoslav Nikolov started his career with PROFI CREDIT Bulgaria since its beginning in year 2006 occupying the position of a Director of “Finance” Department. In November 2012 he was appointed as Managing Director of PROFI CREDIT Bulgaria.

Svetoslav Nikolov holds a Master’s degree in Public Finance as a graduate of the University of National and World Economy, and a Bachelor’s degree in Accounting and Control as a graduate of “D. A. Tsenov” Academy of Economics. He had taken expert positions in finance and accounting in a series of companies, among which Napredak Holding AD, Huvepharma AD and Ogneuporni Glini (Refractory Clay) AD.

Immediately after his graduation Petr Vrba joined PROFIREAL Group taking a manager’s position. He subsequently rose to a member of the Board of Directors and since April 2006 he has been an Executive Director (CEO) of “Development” Section of PROFI CREDIT Czech a.s. In this job he is in charge of all the subsidiary companies specialized in loan and credit providing. Petr Vrba is a member of the Board of Directors of PROFI CREDIT Bulgaria.

Petr Vrba graduated from the University of Pardubice with a specialization in the area of Management, Marketing and Logistics.


10

Nikolay Kolev Statutory Executive

From the establishment of PROFI CREDIT Bulgaria in year 2006 to the beginning of year 2013, Nikolay Kolev held the office of an Executive Director (CEO) of the company. Due to the successful development of the company on the Bulgarian market at the beginning of year 2013 Nikolay Kolev was promoted to develop the business as a part of PROFI CREDIT division on new markets. Nikolay Kolev retains also his Managing director’s position in PROFI CREDIT Bulgaria on which he was appointed in year 2006.

He had worked as a Sales representative and later on as a Sales Director of Promobile Bulgaria where he had been in charge of the automobile make of Volvo concern. He had held the offices of a Sales Director and Business Development & New Markets Director of Actavis Group. His experience as a director had been further consolidated in Alen Mak AD.

Zdravko Raychev Statutory Executive

Since the beginning of year 2013 Zdravko Raychev has been holding the office of an Executive Director (CEO) of the company for Bulgaria. He has been a member of the management team of PROFI CREDIT Bulgaria since its establishment in year 2006 taking the positions of Director of “Sales Development” Department, Director of “Sales” Department, and from year 2010 – Director of “Collection” Department. From the end of the said year Zdravko Raychev has also been a Managing Director of PROFI CREDIT Bulgaria.

Zdravko Raychev holds a university degree in Marketing and Management, and a Master’s degree in Business Economics. He has experience in manager’s positions in the management and development of service business and work in financial services projects under USAID programs.


11

3.2. Company Profile

PROFI CREDIT Bulgaria EOOD was registered on 19th of April 2006 as a private limited

company under Trade Law regulations by the name PROFIREAL Bulgaria EOOD. Main

activity is to provide loans to individuals, who are Bulgarian citizens with permanent income.

PROFI CREDIT Bulgaria started its trade activities in the second half of 2006 simultaneously

in Varna and Pleven regions, as a result the first loan was granted on 1st November 2006.

In year 2007 the expansion continued, in February the company started activities

in Blagoevgrad region, later also in Bourgas and Plovdiv regions. The opening of the Sofia

branch completed the company strategy that is based on the full coverage of the country.

In 2007, in connection with the changes in EU legislation and the implementation of the

obligatory legal organizational form of the companies with international activities,

PROFIREAL Group was transformed into a European company holding structure.

PROFIREAL Group SE, located in the Netherlands, became the mother company of the

financial group. Following the new company identity, PROFIREAL Bulgaria EOOD changed

its name to PROFI CREDIT Bulgaria EOOD on 15th of February 2008. This change in the

name is applicable for all daughter companies in the holding structure.

The trade activity of PROFI CREDIT Bulgaria EOOD is currently divided into four regions –

EAST, WEST, NORTH and SOUTH. The company headquarters is located in Sofia.

Apart from its regional offices, PROFI CREDIT Bulgaria EOOD operates on the territory of

the country also with its district offices in most of the major cities – Sofia, Varna, Pleven,

Blagoevgrad, Plovdiv, Bourgas, Shumen, Dobrich, Silistra, Rousse, Veliko Turnovo,

Gabrovo, Troyan, Vratsa, Kyustendil, Pernik, Petrich, Stara Zagora, Sliven, Yambol,

Haskovo, Pazardzhik and others. Currently the company has teams in more than 40 cities all

over the country.

As a part of the PROFIREAL Group, PROFI CREDIT Bulgaria is a dynamically growing

company. It has been establishing its professional network of credit experts with success all


12

over the country. The company’s motto is „Tailor-Made Money” and a great emphasis is put

on an individual approach to the customer. Based on face-to-face meetings in a place and time

convenient for the client, the specific conditions of every single credit are defined.

3.3. Product Offer

PROFI CREDIT Bulgaria offers to its customers non-purpose consumer loans to individuals

as well as business loans to small and medium-sized enterprises. The Company provides six

different product groups – PROFI CREDIT Prestige, PROFI CREDIT Favorit, PROFI Made,

PROFI CREDIT Energy, PROFI CREDIT Business Energy and PROFI CREDIT Business,

directed to various groups of customers.

PROFI CREDIT Prestige product group provides non-purpose consumer loans to individuals

with proven permanent incomes above the country’s average. Loan amounts available vary

between 500 and 8000 BGN, loan tenors – between 12 and 36 months.

PROFI CREDIT Favorit product group offers non-purpose consumer loans for individuals

with proven permanent income, incl. pensioners. Product group includes two products

– PROFI CREDIT Favorit and PROFI CREDIT Favorit VIP. The PROFI CREDIT Favorit

VIP product provides the customer the opportunity to get higher loan amount and price

discount upon providing a joint debtor as a collateral security. PROFI CREDIT Favorit

product group offers loan amount between 500 and 8000 BGN with tenors available between

12 and 48 months.

The PROFI Made product group provides non-purpose consumer loans to individuals with

unproven (unofficial) but permanent income. Product group includes two products – PROFI

Made and PROFI Made VIP. The PROFI Made VIP product provides the customer the

opportunity to get higher loan amount and price discount upon providing a joint debtor as

a collateral security. PROFI Made product group offers loan amount between 500 and 5000

BGN with tenors available between 12 and 48 months.


13

The product group of PROFI CREDIT Energy provides small and quick consumer loans to

individuals with proven permanent income. Product group is targeted to people, who have

income below the average level for the country. This product group includes two products

– PROFI CREDIT Energy and PROFI CREDIT Energy MAX. The amount of the product

PROFI CREDIT Energy is within the range BGN 100 to BGN 350, and the product PROFI

CREDIT Energy MAX provides loans to the amount of up to BGN 500. The terms for which

these two types of products are offered are 6, 8, 10 and 12 months.

PROFI CREDIT Business Energy is easy, quick and non-secured loan intended to finance

micro and small enterprises as well as self-employed people, including freelancers and

craftsmen. PROFI CREDIT Business Energy does not require any collateral (pledge,

mortgage, co-debtor, etc.). Loan amounts offered vary between BGN 500 and 1000, and the

repayment term is 12 months.

PROFI CREDIT Business product is intended to provide financing to micro and small

businesses, freelancers and agricultural producers. Product is targeted to businesses, who are

looking for easy, fast and convenient financing in order increasing the working capital or

making business invesments. Loan amounts available vary between 1000 and 11 000 BGN

and term from 12 to 48 months. Depending on the risk profile of customers and the amount of

the loan PROFI CREDIT Business is available with or without collateral. PROFI CREDIT

Business product provides various benefits for returning customers like price discount,

availability of higher loan amount, etc.

Especially for its best and fair customers meeting particular criteria PROFI CREDIT Bulgaria

has developed the “Loyal” option. This option grants the customer a discount of up to 30% of

the price of the regular products.

The company transfers customers’ loans to a personal bank account specified by the

customer. The loan repayment is performed on monthly basis and the company customers

have the right to choose a loan repayment due day based on their personal preferences. The

customer him/herself choses the manner of repayment of his/her loan to PROFI CREDIT


14

Bulgaria among the following legally permissible ways – cash payment, cash transfer, credit

transfer, periodic payment or direct debit.

The major product groups of the company - PROFI CREDIT Favorit, PROFI Made and

PROFI CREDIT Prestige give the customers the opportunity of one-time deferment of up to 3

consecutive monthly installments. This way the company customers are insured against

unforeseen events like lasting disease or loss of employment.

PROFI CREDIT Favorit and PROFI Made product groups feature also the option of

“Revolving”, i.e. providing “fresh” money to client through automatic renewal of loan

contract with no subsequent application process. Every customer of PROFI CREDIT

Bulgaria, who has good payment morale could benefit from the “Revolving” option. For

example, if loan is borrowed for the period of 18 months, after the 12th repayed installment

customer can use the sum he/she has repaid up to that moment under the same terms and

conditions and without any change of the due date or the installment size.

An extra option – “Refinancing” is provided for the major product groups of the company –

PROFI CREDIT Favorit, PROFI Made and PROFI CREDIT Prestige. The refinancing option

provides the customers the opportunity to borrow a new loan, before finally repay the initially

one or to repay a debt of theirs to some other lender. This option was perceived positively by

the customers.

PROFI CREDIT Bulgaria abides by the principle of responsible lending providing loans

taking into account the customers’ capability to repay them. If some customer’s application

cannot be approved for the whole amount of the loan applied for, such an application is not

refused, but the loan amount is reduced. By this way the company maintains its slogan “Pari

po myarka” (i.e. Loans within the customers’ means).

Led by the desire to ensure the comfort and convenience of its customers the Company has

developed a one-step procedure for loan applying, and this feature distinguishes it from the

other financial institutions, and is highly appreciated by the customers. With this procedure

upon filling in the application documents the customer signs also the contract and thus if


15

his/her application is approved, he/she shall receive the money without the need to visit an

office of the company again and to fill in and sign additional documents.

3.4. Business Results

In 2013 PROFI CREDIT Bulgaria disbursed 14 186 loans amounting to BGN 64 162 934 and

344 revolvings to the amount of BGN 578 190.

VOLUME OF LOANS DISBURSED IN 2007 – 2013 (in BGN)

In 2013 the total nominal value of all loans increased with 22.6% compared with the year

2012.

For the period between 2007 and 2013 the total nominal value of all loans that have been

disbursed reached 234 266 631 BGN.

2007 2008 2009 2010 2011 2012 2013

7 064 661

18 400 768 18 319 889

30 298 230

41 745 206

52 789 873

64 741 124


16

THE VOLUME OF LOANS DISBURSED IN BOTH THE FIRST AND

SECOND HALF OF 2013 (in BGN)

The distribution of production in 2013 shows that 52% of the nominal value is disbursed in

the second half of the year.

NUMBER OF LOANS DISBURSED IN 2007 – 2013

The WEST and EAST region had the largest volume of sales in year 2013. WEST granted

34% of nominal value whereas EAST granted 32%. These two regions were followed by

SOUTH (18%) and NORTH (16%).

1-6.2013 7-12.2013

31 071 447

33 669 677

2007 2008 2009 2010 2011 2012 2013

2 778

7 5357 921

8 958

10 797

12 998

14 530


17

VOLUME OF LOANS DISBURSED IN 2013 BY REGIONS (in BGN)

3.5. Business Network

PROFI CREDIT Bulgaria offers its products and serves its customers through direct sales

network. The sales networt consists of 4 regions – NORTH, EAST, SOUTH and WEST. Each

region has a regional director. All regions are divided into smaller units called areas and sub-

areas. An area is managed by area manager whereas a subarea is managed by team manager.

The main position in the sales network is credit advisor. Credit advisors operate on the basis

of a collaboration agreement and the amount of their commissions depends on the volume of

loans disbursed and the type of the product.

At first Credit advisors are looking for potential clients. Next step is to choose a type of

product which fits to the individual need of a client. The role of the credit advisor is to take

care of the client after a loan has been disbursed.

North East South West

10 310 589

20 546 822

11 751 930

22 131 783


18

PROFI CREDIT Bulgaria aims to motivate all employees and credit advisors through

different kind of initiatives. Initiatives include different competitions. To win a bonus each

participant should fulfill a plan or achieve a particular goal.

NUMBER OF CREDIT ADVISORS BY MONTHS IN 2013

By May 2013 the number of credit advisors had a negative trend. In the next few months the

parameter has been stable and since August it started to grow up and reached its highest

values for 2013 in the last 3 months of the year.

3.6. Employees

In PROFI CREDIT Bulgaria we believe that our employees are our main power. It is not easy

to establish a successful company and keep it successful. Such companies are created by

individuals who make the right decisions at the right time and under the right circumstances.

The Human Resources policy of PROFI CREDIT Bulgaria is directed towards development

of employees for the purpose of full use of the talent/skills of our team. The quality of our

products and services has been driven by the employees’ professionalism and accuracy.

676651

612 600 595622

648612 630

697 690 703


19

Guided by the principle of selection of the best employees, the company adopts a balanced

approach of evaluation by searching for compliance between personal characteristics and

position requirements, as well as between the individual and the company culture.

In order to use the talent, power and creativity of our employees to a maximum degree,

we have established working environment stimulating productivity, cooperation and

solidarity.

At the end of 2013, the company had 132 employees, 91 of them are based at the

Headquarters of the company and 41 – in the Sales and Collection networks.

NUMBER OF EMPLOYEES IN 2007 – 2013

For the purpose of executing its progressive plans, the company relies on people with suitable

education, proven skills and experience. The requirements towards the higher and medium

management staff in the company are set very high. The management consists

of trained specialists with considerable knowledge and education in Business, Finance,

Marketing, Management, Economics, Psychology, Public and Linguistic Sciences, as well as

knowledge of foreign languages (English, German, Russian, Spanish and Czech). Our team

is experienced in managing projects from different business areas, which ensures a broader

view and creative thinking when adopting strategic decisions pertaining to the company

development.

2007 2008 2009 2010 2011 2012 2013

94

112

98 96106 108

124


20

From a strategic business perspective, the goal of recruiting is not to simply hire people into

the organization, but to reliably and efficiently place and retain the right people in the right

roles to effectively support a company’s business strategies. The recruitment procedure of the

company includes a review of the applications, a specialized interview, work and analysis on

case studies, monitoring of the professional and individual characteristics of the applicants,

including communication skills, motivation, degree of independence and reliability, team

work and adaptation, management potential as well as provision of references.

PROFI CREDIT Bulgaria is a company with broad perspectives both inside and outside the

company. For the purpose of their implementation, we provide our employees with the

opportunity for in-house career development.

PROFI CREDIT Bulgaria implemented for its employees DEVELOPMENT

MANAGEMENT PROGRAM. The main goal of the Program is to identify the talents and to

develop employees in long-term who possess management potential with prospect of their

professional growth and retention at the company. Training system is specially designed

according to the specific company needs. DEVELOPMENT MANAGEMENT PROGRAM is

accompanied by continuous training and applying what has been learned in the workplace,

thereby ensuring success of acquiring the specific skills.

Through the Junior Trainee Program PROFI CREDIT Bulgaria provides young and ambitious

people with the opportunity to start their career as part of the company team and gain

professional experience in a corporate environment. Trainees participate in the development

of real projects as part of a team or work on specific tasks individually.

In order to be able to function, a company needs two types of capital: financial and human.

In order to be successful and competitive in today’s dynamic market, people count on

something more – they can create or destruct the best business strategy; they can be the

leading or destructive force of the adoption of new technologies. The people are the “raw”

resource which preconditions the successful business. Due to that reason it is a priority for

PROFI CREDIT Bulgaria to invest in its employees.


21

4. REPORT OF THE BOARD OF DIRECTORS

4.1. General Information

PROFI CREDIT Bulgaria EOOD ("the Company") is a sole-owned limited liability company

established on April 19, 2006, registered under Company File No. 4083 / 2006 at the Sofia

City Court, with a seat and management address: Sofia, 49 Bulgaria Blvd., bl. 53Е, entr. B,

1404 Sofia, Identification Code 175074752.

The Company is specialized in providing consumer loans to individuals and small business.

The principle legislation under which the Company operates is the Commercial Act, Credit

Institution Act and the Ordinance No 26 dated 23.04.2009 of the Bulgarian National Bank for

financial institutions.

With an order of the Bulgarian National Bank deputy director dated 05.02.2010 PROFI

CREDIT Bulgaria EOOD is registered in the financial institution register pursuant to Art. 3,

Para 2 of the Credit Institution Act.

The registered capital of the Company is BGN 3 250 000.

4.2. Review of the Activity

GENERAL OVERVIEW

The Company provides loans to clients through its sales network for direct selling. The

business of the Company is split in four main regions: EAST, WEST, NORTH and SOUTH.

Direct sales and client’s servicing is performed by external collaborators – credit advisors.

In 2013 the number of provided loans to customers was 14 530 (2012: 12 998 loans). The net

amount of loans paid to clients in 2013 is BGN 21 735 thousand (2012: BGN 16 971


22

thousand) or 28.07% year growth. The nominal value (paid out principle to client plus

contractual remuneration for the entire loan term) of disbursed loans in 2013 amounted to

BGN 64 741 thousand (2012: BGN 52 790 thousand) or 22.64% year growth.

As of December 31, 2013 the Sales network consists: 4 Regional offices, 27 Area offices with

28 Area managers, 41 Team managers and 703 Credit advisors.

The expanding of the Sales network continued in 2013 by appointing new Team managers

and Credit advisors in the smaller cities. The Team managers are external collaborators for the

Company who manage the Credit advisors teams in the smaller cities, where the Company

doesn’t have its own offices and employees.

Collection network represents a basic unit in the process of receivables collection in judicial

phase. As of December 31, 2013 the number of External collectors is 60.

The head office of the Company is located in Sofia. The staff in the head office performs

strategic planning and performance management, risk evaluation and analysis, approval of

credit applications, collection processes management, staff and external collaborators training,

human resources management, marketing, development and maintenance of information

technologies, etc.

The Company receives financial and technical support by the Parent company PROFIREAL

Group SE, The Netherlands.

As of December 2013 the average number of employees is 132 (2012: 108).

REVIEW OF FINANCIAL RESULTS

PROFI CREDIT Bulgaria realises net profit at amount of BGN 4 055 thousand for the year

2013 (2012: 436 thousand). The Company generates positive financial results for second

consecutive year since its foundation. The reduction of interest costs is a result of capital

increase through debt to equity transformation realized in the end of 2012.


23

Net interest income

Net interest income increased by BGN 7,371 thousand or 58.74% - from BGN 12,548

thousand in 2012 to BGN 19,919 thousand in 2013. Net interest income mainly depends on

the amount of the interest bearing assets, as receivables from loans to clients and also from

the volume of the interest bearing liabilities, as loans from banks, other received loans as well

as the difference between the interest rates of the interest bearing assets and liabilities.

Interest expenses for the reporting year amounted to BGN 5,767 thousand (2012: BGN 8,633

thousand). The significant decrease of interest expenses is due to realized in 2012 capital

increase through a transformation of interest bearing debt into equity. This reduction is the

main driver to decrease the interest expenses.

For the reporting year interest revenues amounted to 25,686 thousand (2012: 21,181

thousand). The growth in revenues is explained by the growth in loan portfolio.

Impairment losses

Impairment losses amount to BGN 7,176 thousand (2012: BGN 5,826 thousand) or increase

of 23.17% compared to 2012.

As of December 31, 2013 the credit quality remained relatively stable, as loans overdue more

than 60 days amounted to BGN 35,469 thousand or 47.34% of the gross loan portfolio before

impairment, in comparison to BGN 25,137 thousand or 44.21% of the gross loan portfolio at

the end of the previous reporting period.

Although the positive indications for recovery of the leading global economics as well as the

Bulgarian economy, the recovery is still fragile and many economic sectors still meet

difficulties. Despite being less likely, it is possible that quality of the loan portfolio to keep

deteriorating, which would result in further growth in impairment losses on loans. The

Company’s portfolio entirely comprises of unsecured consumer loans.


24

Notes 5 and 12 to the annual financial statements present more detailed information about the

impairment losses and the quality of the loan portfolio.

Net fees and commissions costs

The net fees and commissions costs in 2013 represent loss at the amount of BGN 2,054

thousand (2012: loss at the amount of BGN 1,527 thousand) or an increase of loss by 34.51%.

The main reasons for such loss increase are:

• Court charges, arbitrary fees and bailiff charges amounting to BGN 705 thousand and

decrease by BGN 10 thousand (2012: BGN 715 thousand). The increase is due to the

higher volume of receivables submitted to the private court executors;

• Sales commissions’ costs that are not included into effective interest rate calculation at

amount of BGN 944 thousand for 2013 (2012: BGN 680 thousand). The reason for such

increase is the growth of new loans granted in the current year;

• Commissions’ costs paid to external collectors, which in 2013 amounted to BGN 630

thousand (2012: 469 thousand). The collectors are external collaborators of the Company

that are collecting receivables from overdue loans mainly receivables from legally

prosecuted loans. The increase of commissions is due to higher amount of loans from

customers, served by external collectors;

• Cost for sales commissions paid out to credit advisors, which are not completely

amortized in the interest income, in case of early repayment of the loans. In 2013 this cost

amounted to BGN 1,132 thousand compared to BGN 524 thousand in 2012. High growth

of this cost is due to increased volume of loans granted in 2013 compared to previous

reporting period;

• Revenues from credit advisor commissions’ write-offs, which in 2013 amounted to

BGN 1 794 thousand compared to BGN 1 029 thousand for the previous year. Mostly

these are non-monetary revenues from undue sales commissions, that were initially

included into effective interest rate calculation, but later on part of them were not really

paid out to credit advisors due to the following reasons: if the loan contract is legally

prosecuted; upon early repayment of the loan; if the credit advisor haven’t met the criteria

for getting of commission for payment of loan instalment; when the instalment have been

collected from external collector; etc.


25

Note 6 to the annual financial statements comprise detailed information about the components

of net fees and commissions costs.

General and administrative expenses

The general and administrative expenses have significant impact on realized profit as the

amount of increase is BGN 1,575 thousand or 30.22% - from BGN 5,211 thousand in 2012 to

BGN 6,786 thousand in 2013. The general and administrative expenses include personnel

expenses, other administrative expenses and depreciation and amortization of fixed assets.

Personnel expenses

Personnel expenses have the major share in the general and administrative expenses which

increased by BGN 947 thousand or 32.8% - from BGN 2,887 in 2012 to BGN 3,834 in 2013.

The increase of personnel expenses is due to increase in the average number of employees in

2013. The average number of employees in 2013 is 126 (2012: 106).

Other administrative expenses

Other administrative expenses increase by BGN 623 thousand or 28.09% - from BGN 2,218

thousand in 2012 to BGN 2,841 thousand in 2013. Other administrative expenses includes

office rental and overhead costs, marketing and advertising costs, postage and

telecommunication expenses, national and foreign business trip expenses, consulting services,

etc. The main reason for increase in other administrative expenses is due to increase of

marketing, business trips and energy expenses.

Depreciation/amortization of fixed assets

The depreciation/amortization charges of fixed assets increased by BGN 5 thousand - from

BGN 106 thousand in 2012 to BGN 111 thousand in 2013.

Note 7 to the annual financial statements comprise detailed information about the structure of

general and administrative expenses.


26

Net insurance income

During the reporting period the net insurance income increases by BGN 132 thousand or

17.51% - from BGN 754 thousand in 2012 to BGN 886 thousand in 2013.

Note 8 to the annual financial statements comprise detailed information about the net

insurance income.

Other operating income, net

During the reporting period other net operating expenses amounted to BGN 734 thousand

compared to the expense at the amount of BGN 305 thousand in 2012. Key components of net

operating expenses are:

• Credit management fee of BGN 508 thousand (2012: BGN 142 thousand)

• Realized foreign currency gains amounting to BGN 14 thousand in 2013

comparing to realized foreign currency gains amounting to BGN 229 thousand in 2012;

• Hired services from related parties amounting to BGN 442 thousand in 2013

(2012: BGN 394 thousand).

• Revenues for provided services to related parties amounting to BGN 192

thousand in 2013 (2012: BGN 0 thousand).

Notes 9, 18 and 23B to the annual financial statements comprise detailed information about

the components of other operating expenses.

ASSETS

As of December 31, 2013 the assets amounted to BGN 52,580 thousand, the increase over the

previous year is 28.27% (2012: BGN 40,993 thousand).

The statement of financial position structure is not changed significantly compared to prior

year. At the end of 2013, the biggest share of assets belonged to loans to customers – 95.58%

of total assets (2012: 96.0%), followed by other receivables – 2.11 % (2012: 2.44%), etc.


27

LIABILITIES

As of December 31, 2013 liabilities amounted to BGN 44.028 thousand, a 20.60% decrease

compared to the previous year (2012: BGN 36,507 thousand).

At the end of 2013 other received loans amounted to BGN 35,608 thousand (2012: BGN

29,748 thousand), represented 80.88% of total liabilities compared to 81.49% at the end of

2012. The amount represents principle and interest payable for December 2013 for loan

received from foreign company with maximum credit limit up to EUR 24,200 thousand

matured on December 31, 2015. The loan is secured by total receivables from loans to

customers as well as a blank promissory note is issued to the creditor and with registered

pledge of company shares.

Other liabilities at the amount of BGN 7,914 thousand (2012: BGN 6,276 thousand) consist

mainly of deferred insurance income amounted to BGN 3,695 thousand (2012: 3,030

thousand), liabilities to credit experts no fallen due of BGN 2,451 thousand (2012: BGN

2,192 thousand), and others.

EQUITY

As of December 31, 2013 the Company reported positive equity amounting to BGN 8,552

thousand (2012: BGN 4,486 thousand).

In 2013 the share capital of PROFI CREDIT is BGN 3,250,000.

4.3. Significant Events Occured After the Data of the Financial Statements

There are no significant events occurred after the date of the financial statements of the

Company.

4.4. Future Development of the Company


28

The Company set the following main objectives for 2014:

• To keep the growth of disbursed new loans to clients in comparison to the previous year;

• Product portfolio diversification and launch of new products;

• To continue the territorial expansion by extending the distribution network;

• To improve the quality of loan portfolio;

• Improvement of the processes and results of legal collection unit;

• Strict control and increased costs efficiency;

• Diversification of the sources of financing;

4.5. Development and Research Activities

The Company did not perform any research and development activities during the year.

4.6. Description of the Significant Risks to the Company

Risk management, being a key indication in lending activities, is among the strategic goals of

the Company’s management. PROFI CREDIT Bulgaria pays particular attention and allocates

resources for preventive management of risk factors, and implements on a timely basis

leading practices in the area. Significant investments for development of the information

technologies of the Company have been made.

For more detailed information about the Company's exposure to significant risks, see note 23

to the annual financial statements.

Credit risk

Credit risk is reflected in the probability of a counterparty to a financial instrument not being

able to fulfil its payment obligation as it falls due and thus to cause financial losses to the

Company.

The main financial assets of the Company as of December 31, 2013 comprise cash and cash

equivalents amounting to BGN 389 thousand (2012: BGN 397 thousand) and loans granted to

customers amounting to BGN 50,255 thousand (2012: BGN 39,351 thousand).


29

The Company is exposed to credit risk related to the risk some of the clients not being able to

fulfil their liabilities.

In order reducing the credit risk the Company uses its own network of employees (collection

of receivables coordinators), as well as a developed network of external assistants - credit

agents and collectors of the Company’s receivables.

The credit risk is diversified among a significant number of clients around the country. Some

of the loans are additionally secured by third parties – guarantors.

In 2010, after change in Ordinance 22 of the Bulgarian National Bank, PROFI CREDIT

Bulgaria EOOD obtained an access to the Central Credit Register of BNB. Access to the

information in the register contributes on additional mitigation of the credit risk.

Liquidity risk

Liquidity risk is the risk the Company not being able to meet its payment obligations or

provide loans to customers, which may originate from a gap between the Company’s cash

flows. With respect to the liquidity risk management, the Company’s objective is to perform

timely its payment obligations as well as ensuring sufficient resources for achieving high

growth in assets.

Price risk

PROFI CREDIT Bulgaria operates in a very well developed and competitive market of

financial services, and therefore, it is exposed to price risk. Some of the Company’s

competitors are banks and financial institutions having access to cheaper financial resources,

which puts them in a better position in pricing competitive products.

Foreign currency risk

Foreign currency risk is the risk of change of the financial instruments value due to significant

changes in foreign currency markets. The difference between the levels of financial

instruments, and respectively, of assets and liabilities denominated in foreign currencies,


30

reflects the extent to which a particular financial instrument is exposed to a foreign currency

risk.

The Company performs its monetary operation mainly in EUR, CZK and BGN. The loans

granted to clients are in BGN only. The exchange rate of EUR/BGN is fixed according to an

Agreement between the Republic of Bulgaria and the International Monetary Fund and in

compliance with the Bulgarian National Bank Law.

Interest rate risk

Interest rate risk relates to the possible adverse effect to the Company which fluctuations in

interest rates might have on the net interest income. Company uses long-term financing with a

fixed interest rate. Loans to customers’ bear fixed interest rate largely exceeding the interest

rates at which the Company obtains its financing. Therefore, management believes that the

activity of PROFI CREDIT Bulgaria is not very sensitive to interest rate fluctuations.

4.7. Total Remunerations Received by Management During the Year

2013 2012

Number of members 4 4

Remunerations accrued 541 215

Others (social security and health insurance, etc) 14 4

Total (in BGN thousand) 555 219


31

4.8. Participation of Managing Directors in other Companies

Name Company in the management and control

bodies of which the persons participate

Petr Vrba PROFIREAL GROUP SE, The Netherlands

PROFI CREDIT Poland, Sp. d о.о.

PROFI CREDIT Czech Republic, а.s.

PROFI CREDIT Slovakia, s.р.о.

PROFIREAL OOO, Russia

Nikolay Kolev PROFIDEBT Bulgaria EOOD

PROFIREAL OOO, Russia

Zdravko Raychev PROFIDEBT Bulgaria EOOD

Elada Properties EOOD

Svetoslav Nikolov He is not a member of other management or

controlling bodies.

Zdravko Raychev Svetoslav Nikolov

Managing Director Managing Director


32

5. INDEPENDENT AUDITOR’S REPORT


33


34


35

6. FINANCIAL STATEMENTS

6.1. STATEMENT OF COMPREHENSIVE INCOME


36

6.2. STATEMENT OF FINANCIAL POSITION


37

6.3. CASH FLOW STATEMENT


38

6.4. STATEMENT OF CHANGES IN EQUITY


39

6.5. NOTES TO THE FINANCIAL STATEMENTS

1. Description of the main activity

PROFI CREDIT Bulgaria EOOD ("the Company") was registered on April 19, 2006 under

company case 4083/2006 as a sole owner limited liability company according to the

requirements of the Bulgarian Commercial Act.

On February 11, 2008 the name of the Company was changed from PROFIREAL Bulgaria

EOOD to PROFI CREDIT Bulgaria EOOD.

The Company is specialized in providing loans to individuals and small business enterprises.

The share capital is BGN 3 250 000.

Structure of property

The owner of the Company as of December 31, 2013 is:

Profireal Group S.E., Netherlands 100%

Headquarters and address of management


49, Bulgaria Blvd., bl. 53 Е, entrance V

Sofia, Sredets Municipality, Bulgaria

Identification number

175074752

VAT number

BG175074752


40

Managing Directors of the Company as of December 31, 2013 are:

Nikolay Binev Kolev

Zdravko Stamenov Raychev

Petr Vrba

Svetoslav Nikolaev Nikolov

Changes in the Commercial register

The following changes have been made till the date of the preparation of the statement of

financial position:

• On February 9, 2007 Vratislav Ionash Kubinek was removed as a managing

director and Nikolay Binev Kolev was registered as a new managing director;

• On September 3, 2007 PROFIREAL AD was removed as a sole owner and

PROFIREAL HOLDING AD, the Czech Republic, was added as a new sole owner;

• On February 11, 2008 the name of PROFIREAL Bulgaria EOOD was changed

to PROFI CREDIT Bulgaria EOOD;

• PROFIREAL HOLDING AD was removed as a sole owner on February 11,

2008 and PROFIREAL Group S.E., the Netherlands was added as a sole owner.

• In July 2009 the share capital was increased to BGN 250 000.

• On February 25, 2011 Tomas Rosenberger was removed as a managing

director and Zdravko Stamenov Raychev was registered as a new managing director;

• On June 28, 2011 Alexandar Jotev was removed as a managing director and

David Chour was registered as a new managing director;

• On November 27, 2012 David Chour was removed as a managing director and

Svetoslav Nikolaev Nikolov was elected as a new managing director. The share capital was

increased to BGN 3 250 000

Organizational structure

The activities of the Company are organized in four geographical regions: EAST, WEST,

NORTH and SOUTH. The head office is in Sofia. The staff in the head office performs

strategic planning and management, services in the field of corporate finance, marketing and

information technologies.


41

2. Basis for preparation of the financial statements and accounting principle

These financial statements are prepared in accordance with International Financial Reporting

Standards (IFRS), issued by the International Accounting Standards Board (IASB) and the

interpretations, issued by the International Financial Reporting Interpretations Committee

(IFRIC), as approved by the European Union (the “EU”) and applicable in the Republic

of Bulgaria.

(a) Changes in IFRS

Standards and Interpretations effective in the current period

The following standards, amendments to the existing standards and interpretations issued by

the International Accounting Standards Board (IASB) and adopted by the EU are effective for

the current period:

• IFRS 13 “Fair Value Measurement”, adopted by the EU on December 11, 2012

(effective for annual periods beginning on or after January 1, 2013);

• Amendments to IFRS 1 “First-time Adoption” of IFRS - Severe Hyperinflation and

Removal of Fixed Dates for First-time Adopters, adopted by the EU on December 11,

2012 (effective for annual periods beginning on or after January 1, 2013);

• Amendments to IFRS 1 “First-time Adoption” of IFRS – Government Loans , adopted

by the EU on March 4, 2013 (effective for annual periods beginning on or after

January 1, 2013);

• Amendments to IFRS 7 Financial Instruments: Disclosures - Offsetting Financial

Assets and Financial Liabilities, adopted by the EU on December 13, 2012 (effective

for annual periods beginning on or after January 1, 2013);

• Amendments to IAS 1 Presentation of financial statements - Presentation of Items of

Other Comprehensive Income, adopted by the EU on June 5, 2012 (effective for

annual periods beginning on or after July 1, 2012);


42

• Amendments to IAS 12 Income Taxes - Deferred Tax: Recovery of Underlying

Assets, adopted by the EU on December 11, 2012 (effective for annual periods

beginning on or after January 1, 2013);

• Amendments to IAS 19 Employee Benefits - Improvements to the Accounting for

Post-employment Benefits, adopted by the EU on June 5, 2012 (effective for annual

periods beginning on or after January 1, 2013);

• Amendments to various standards “Improvements to the IFRSs (cycle 2009-2011)”

resulting from annual improvement project of IFRS (IFRS 1, IAS 1, IAS 16, IAS 32,

IAS 34) primarly with a view to removing inconsistencies and clarifying wording,

adopted by the EU on 27 March 2013 (amendments are to be applied for annual


• IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine”, adopted by the

EU on December 11, 2012 (effective for annual periods beginning on or after January

1, 2013).

The adoption of these amendments to the existing standards has not led to any changes in the

Entity’s accounting policies.

Standards and Interpretations issued by IASB and adopted by the EU but not yet effective

At the date of authorisation of these financial statements the following standards, revisions

and interpretations adopted by the EU were in issue but not yet effective:

• IFRS 10 “Consolidated Financial Statements”, adopted by the EU on December 11,

2012 (effective for annual periods beginning on or after January 1, 2014);

• IFRS 11 “Joint Arrangements”, adopted by the EU on December 11, 2012 (effective


• IFRS 12 “Disclosures of Interests in Other Entities”, adopted by the EU on December

11, 2012 (effective for annual periods beginning on or after January 1, 2014);


43

• IAS 27 (revised in 2011) “Separate Financial Statements”, adopted by the EU on

December 11, 2012 (effective for annual periods beginning on or after January 1,

2014);

• IAS 28 (revised in 2011) “Investments in Associates and Joint Ventures”, adopted by

the EU on December 11, 2012 (effective for annual periods beginning on or after

January 1, 2014);

• Amendments to IFRS 10 “Consolidated Financial Statements”, IFRS 11 “Joint

Arrangements” and IFRS 12 “Disclosures of Interests in Other Entities” - Transition

Guidance, adopted in the EU on April 4, 2013 (effective for annual periods beginning

on or after January 1, 2014);

• Amendments to IFRS 10 “Consolidated Financial Statements”, IFRS 12 “Disclosures

of Interests in Other Entities” and IAS 27 “Separate Financial Statements” -

Investment Entities, adopted in the EU on November 20, 2013 (effective for annual


• Amendments to IAS 32 “Financial instruments: presentation” - Offsetting Financial

Assets and Financial Liabilities, adopted by the EU on December 13, 2012 (effective


• Amendments to IAS 36 “Impairment of assets” – Recovable amount of Disclosuers for

Non-Financial Assets, adopted by the EU on December 19, 2013 (effective for annual


• Amendments to IAS 39 “Financial instruments: Recognition and Measurement” –

Novation of Derivatives and Continuation of Hedge Accounting, adopted by the EU

on December 19, 2013 (effective for annual periods beginning on or after January 1,

2014);


44

Standards and Interpretations issued by IASB but not yet adopted by the EU

At present, IFRS as adopted by the EU do not significantly differ from regulations adopted by

the International Accounting Standards Board (IASB) except from the following standards,

amendments to the existing standards and interpretations, which were not endorsed for use as

at the date of publication of financial statements:

• IFRS 9 “Financial Instruments” and subsecuent amendments (effective for annual


• Amendments to IAS 19 “Employee Benefits” – Defined Benefit Plans: Employee

contributions (effective for annual periods beginning on or after January 1, 2014);

• Amendments to IFRS 1 First-time Adoption of IFRS - Government Loans (effective


• Amendments to various standards “Improvements to IFRSs (cycle 2010-2012)

resulting from the annual improvement project of IFRS (IFRS 2, IFRS 3, IFRS 8,

IFRS 13, IAS 24 and IAS 38) primarily with a view to removing inconsistencies and

clarifying wording (amendments are to be applied for annual periods beginning on or

after January 1, 2014).

(b) Functional and presentation currency

The Company keeps its accounting records in the national currency of the Republic of

Bulgaria the Bulgarian Lev. These financial statements have been prepared in thousand BGN,

which is the functional currency used in the Company, except when otherwise stated. The

exchange rate of the EUR to the BGN is fixed by law and is EUR 1 to BGN 1.95583.

(c) Recognition of income and expenses

Income and expenses for interest are recognized in the statement of comprehensive income

for all interest-bearing assets and liabilities using the effective interest method and on accrual

basis.


45

The effective interest rate is that rate, which precisely discounts the expected future cash

flows during the expected life of the financial asset or liability up to the carrying amount of

the financial asset or liability. The effective interest rate is determined at the initial

recognition and is revised only when the repayment schedule of the loan is renegotiated.

The calculation of the effective interest rate includes payable fees, transaction costs, as well as

the discounts and premiums, which are an integral part of the effective interest rate. The

transaction costs are the marginal costs directly related to the acquisition, emission or sale of a

financial asset or liability.

Non-interest bearing incomes and expenses are recognized in the statement of comprehensive

income on accrual basis.

(d) Insurance income and expenses

The Company recognizes insurance income and expenses arising from consumer loans that

have the option for client to postpone up to three installments from the initial payment

schedule. Upon new loan disbursement the Company recognizes a part from total loan

remuneration as deferred insurance income which is recognized in the current incomes

proportionately over the entire loan term.

The insurance premium covers the risk of impossibility for payment of a repayment

installment at maturity as a result of certain events.

(e) Property, plant and equipment and intangible assets

Property, plant and equipment and intangible assets are reported at historic cost decreased by

the accumulated depreciation/amortization and impairment losses. Depreciation/amortization

is charged by systemically applying the straight-line method over the expected useful life

of the assets.

The value threshold for recognizing property, plant and equipment and intangible assets

is BGN 500. All acquired assets of value lower than the value threshold are recognized

as expense in the statement of comprehensive income.


46

The expected useful life of the assets acquired after January 1, 2010 is as follows:

At the beginning of 2007 and 2010 the management of the Company changed the useful life

of some categories of assets as follows:

Property, plant and equipment and intangible assets are tested periodically for impairment.

In cases when the carrying amount of the asset exceeds the recoverable amount, then it is

immediately adjusted to its recoverable value.

(f) Inventories

Inventories are measured upon acquisition at cost, including the purchase costs and for

processing, as well as the other costs incurred in relation to their delivery to the current place

and condition. The method of the weighted average price on a period monthly basis is applied

when they are written off.

(g) Impairment of assets

As of each date of preparation of the statement of the financial position the Company reviews

the carrying amount of the assets and determines whether there are indications for recognition

Аssets Period

Office equipment and furniture 60 months

Computers 60 months

Mobile phones 24 months

Vehicles 60 months

Software 60 months

Other tangible assets 60 months

Intangible assets 60 months

Assets After 01.01.2010

Before 01.01.2010

Before 01.01.2007

Office equipment and furniture 60 months 80 months 80 months

Computers 60 months 48 months 24 months

Vehicles 60 months 60 months 48 months

Other tangible assets 60 months 80 months 80 months

Intangible assets 60 months 48 months 24 months


47

of impairment losses. Impairment losses are determined as the difference between the

recoverable amount of the assets and its carrying value. When it is not possible to determine

the recoverable amount of a separate asset the recoverable amount of a group of assets

generating cash flows to which this asset belongs is determined. Intangible assets with an

indefinite useful life and those assets which are not available for sale are annually tested for

impairment, no matter whether there is an indication for the asset’s impairment. The test

includes comparison between the carrying amount and the recoverable amount of the asset.

The recoverable amount is the higher of the fair value less the cost of sales of the assets or the

cash generating unit and their amount in use. When determining the amount in use the

calculated future cash flows are discounted to their current value by applying a suitable

effective interest rate, which reflects the current market levels in relation to the value of the

cash in time and the risks which are specific for the asset.

If the recoverable amount of the asset (or group of assets generating cash flows) is lower than

the carrying amount then the latter is reduced to the recoverable amount of the asset. The

determined impairment loss is recognized immediately as an expense in the statement of

comprehensive income.

The Company reviews as of each date of preparation of the statement of financial position

whether there are indications that the impairment losses of an asset, recognized in previous

years, no longer exist or whether they are reduced. If such indications exist the Company

measures the recoverable amount of the respective asset.

The increased as a result of recovering the impairment loss carrying amount of an asset

should not exceed the carrying amount as it would be (after deduction of

depreciation/amortization), if in previous years impairment losses have not been recognized

for the respective asset. Recovering the impairment losses of an asset should be recognized

immediately in the statement of comprehensive income.


48

(h) Provisions

Provisions are recognized only if:

• The Company has a current right or a constructive liability, arising from past events,

the settlement of which are expected to create an out flowing cash flow of resources of

the Company.

• The amount of the liability can be reliably measured.

In compliance with the requirements of IAS 19 provisions are allocated for payments to the

staff, which are based on an analysis of the unused leave and the average costs for salaries,

including social and health insurance of the employees.

(i) Transactions in foreign currency

Transactions in foreign currency are recorded initially in BGN by applying the central

exchange rate of the Bulgarian National Bank (BNB) to the amount in foreign currency as

of the date of the transaction. Profit and loss, arising from such transactions and from

translation of cash assets and liabilities denominated in foreign currencies are reported in the

statement of comprehensive income.

On December 31, 2013 the cash assets and liabilities, denominated in foreign currency are

revalued in BGN according to the BNB central closing exchange rate publishes by Bulgarian

National bank on December 31, 2013 where: BGN 1.95583 = EUR 1 (fixed rate according to

the Currency Board Agreement) and BGN 7.11729 = 100 CZK

(j) Taxation

In compliance with the Bulgarian legislation the Company is subject to taxation with

a corporate income tax of 10 %.

The corporate income tax for the year includes the current income tax and the changes in the

deferred taxes.

The current income tax is calculated on the basis of the annual taxable profit by using a tax

rate that is effective as of the date of the statement of financial position.

Deferred taxes are calculated for all temporary differences between the accounting and tax

amounts of the assets and liabilities, multiplied by the tax rate effective for the next reporting

period.


49

Deferred tax assets are recognized to the extent that future taxable profit is probable, against

which they can be utilized.

(k) Financial instruments

Financial assets and liabilities are recognized when the Company becomes a party to a

financial instrument contract.

• Loans to customers

Loans granted to customers are non-derivative financial assets with fixed payments, which are

not offered on an active market. All loans are recognized when the money is lent to the

borrower.

The granted loans are reported according to their amortized cost as follows: the fair

value of the paid monetary equivalent plus the costs for the transaction plus deferred

insurance income less the paid installments by the customers plus accumulated amortization

of the interest minus the potential impairment loss.

The effective interest rate is used to amortize the income from interest.

The total amount of the net receivables from loans to customers, reported at amortized cost, as

of December 31, 2013 is BGN 50 255 thousand (2012: BGN 39 351 thousand).

• Impairment of loans

Impairment losses are recognized to the recoverable amount of the asset or group of assets

with similar characteristics. The recoverable amount is determined on the basis of the

expected future cash flows of the instrument which are discounted as of the date of the

statement of financial position by using the effective interest rate of the loan. The impairment

losses of the loans are recognized in cases when objective evidences exist that the Company

may not be able to collect all due amounts on the loan. The amount of the loss is determined

as a difference between the carrying and the recoverable аmount as of the date of the

statement of financial position. When the amount of the impairment significantly decreases as

a result of subsequent events the losses are reduced and the result is recognized as income

from reintegration of losses.

The Company determines the amount of the allowances for impairment on an individual basis

for all significant loans and receivables. Loans and receivables which are not individually


50

significant and bear similar loan risk characteristics for which objective indications of

impairment exist, are impaired on a collective basis, based on an analysis.

• Cash and cash equivalents

For cash flow statement purposes, cash and cash equivalents include cash on hand, money in

transfer, in bank accounts and other financial assets, the amount of which may be reliably

determined and which may be turned into cash immediately.

• Derivative financial instruments

Derivative financial instruments used by Company uses include foreign currency forward

agreements. They are initially reported in the statement of financial position at fair value and

are subsequently revalued at fair value. All derivatives are reported as financial assets when

they are favorable for the Company and as financial liabilities when they are adverse for the

Company. The fair values are measured depending on the changes in the exchange rates.

• Bank and other loans

At initial recognition bank and other loans are measured at acquisition cost, which includes

the fair value of the received loans adjusted with the costs of the transaction with the financial

liability, which includes bank fees and commissions for granting the loan, agents’

commissions, taxes and others. Subsequently the received loans are measured at their

amortizable cost.

• Payables to suppliers

At initial recognition the payables to suppliers are recognized at the fair value of the received

payment adjusted by the transaction costs.

(l) Significant accounting assumptions and accounting estimates when applying the

accounting policies

The preparation of financial statements requires management to make estimates and

assumptions that affect the carrying amount of assets and liabilities as of the date of the


51

financial statements, and the amount of the revenue and expenses during the reporting period,

as well as to disclose contingent assets and liabilities. Although these accounting estimates are

based on the best estimate of the current events by the management, the actual results may

differ from the forecast estimates.

The following estimates and assumptions of the management regarding the future events carry

significant risk for the cost of the assets and the liabilities during the next financial year:

• Determination of impairment loss of loans

To determine whether the receivables on loans to customers are impaired, the management of

the Company makes a reasonable estimate of the excepted cash flows from the respective

loans. The estimate is based on a professional estimate for the quality of the loan portfolio and

on individual significant receivables on loans. Upon determination of the amount of

impairment the management uses the gained historical experience regarding the collectability

of the overdue installments and installments collected at maturity. Upon determination of the

impairment losses on collective base, the management considers each repayment installment

as a separate receivable, the management considers each repayment installment as a separate

receivable, based on the fact that a great part of the irregular clients are turned back to the

initially contracted repayment schedule of the loan.

Due to that reason, in case of delay of a repayment installment the management does not

consider the whole contracted amount of the loan as impaired.

• Recognition of income from other receivables on loans to customers that are

legally prosecuted, reported at fair value.

These receivables are: legal late interest, accrued penalties to clients for breach of contractual

terms, court expenses, arbitration fees, fees for bailiffs, fees for debt restructuring agreements,

etc.

Other receivables on loans to customers that are legally prosecuted are measured at fair value,

determined on the basis of the expected cash flows from the respective instrument, discounted

to the net present value by the effective interest rate of the respective loan. The expected cash

flows are determined by the management of the Company based on the historic analysis of the

collectability of each type of receivable.


52

(m) Changes in accounting policy

In 2013 the management of the Company has not changed its accounting policy.

3. Going concern

As of the date of the preparation of these financial statements management has made an

estimate of the ability of the Company to continue its activities as a going concern. When

making this estimate the management has taken into consideration the whole available

information regarding the foreseeable future, which is at least, but not limited to twelve

months from the statement of financial position.

4. Net interest income

The increase of the interest income compared to the previous year is a result of the significant

increase of the loan portfolio (see also note 12).

The significant decrease of interest expenses is due to realized in 2012 capital increase

through a transformation of interest bearing debt into equity. This reduction is the main driver

to decrease the interest expenses.

2013 2012

Interest income

Interest on customer loans 25 685 21 178

Interest on bank accounts 1 3

25 686 21 181

Interest expenses

Bank loans --- ---

Other loans (5 767) (8 633)

(5 767) (8 633)

Net interest income 19 919 12 548


53

5. Impairment losses

2013 2012

Impairment losses as of January 1 17 560 11 734

Net increase of impairment losses 7 176 5 826

Total impairment losses for credit risk as of December 31 24 736 17 560

6. Net cost from fees and commissions

2013 2012

Bank fees (28) (21)

Guarantee expenses for received loans (409) (147)

Court expenses, arbitrary charges and bailiff fees (705) (715)

Commissions costs on collection of receivables (630) (469)

Commissions costs on sales of loans not included in effective interest rate calculation (944) (680)

Commissions costs on sales of loans still not amortized in the interest revenues in case of loan early termination (1 132)

(524)

Revenues from write off payables for sales commissions 1794

1029

Net costs from fees and commissions (2 054) (1 527)

Expenses for guarantees represent the amount of remuneration due to related parties for

guarantees granted on bank loan of the Company.

Expenses for commissions on sales of loans represent that part of the commissions (including

social and health insurance) of the loan intermediaries for contracting loans, that are not

included in the calculation of the effective interest rate on the loans, such as social and health

insurance, which are on account of the Company, as well as the additional bonuses paid to

sales intermediaries. The standard commissions of the loan intermediaries are included in the

calculation of the effective interest rate for each loan and the interest income from loans is

reduced by the amount of the commission.

Expenses for commissions on collection of receivables comprise the gross amount

of commissions accrued (incl. social security and health insurance) to external collectors

payable upon collection of overdue loans.


54

Income from commissions for granted loans consists of written off liabilities for commissions

of loan intermediaries. Liabilities to loan intermediaries are written off when: the loan

agreement is legally terminated; early repayment of the loan by client; the sales agent does

not meet the criteria for getting of that part of sales commission which is linked to collected

installments; the installment has been collected by external collection agent; others.

7. General and administrative expenses

a) Structure of general and administrative expenses:

2013 2012

Staff costs

Employee benefits 3 139 2 376

Social security and health insurance costs 405 318

Other staff costs and remuneration of the managing directors 290 193

Total 3 834 2 887

Other administrative costs

Energy 181 164

Office consumables and cleaning 190 145

Verification of data 104 102

Rent 451 414

Office equipment and furniture 90 26

Telecommunications and mail services 240 228

Travel allowance 344 196

Advertising and marketing 787 577

Consulting services 119 146

Security 36 31

Other administrative costs 299 189

2 841 2 218

Depreciation/amortization of assets

Depreciation of property, plant and equipment (note 15) 98 92

Amortization of intangible assets (note 16) 13 14

Total 111 106

Total general and administrative costs 6 786 5 211


55

In 2013 the Company recognised expenses related to the audit of the annual statutory

financial statements at the amount of BGN 68 thousand (2012: BGN 52 thousand).

b) Remuneration and salaries paid to the managing directors of the Company.

2013 2012

Short-term income (including social security) 525 219

Total 525 219

The income paid to the managing directors is included in item (а) above as other staff costs

and remuneration of the managing directors, amounting to BGN 206 thousand (2012: BGN 37

thousand) and as employee benefits, amounting to BGN 319 thousand (2012: BGN 182

thousand) (note 25).

c) Average number of employees:

2013 2012

Managing directors 4 4

Employees (including two managing directors) 126 106

Total 130 110

The number of employees as of December 31, 2013 is 132 (2012: 108).

8. Net insurance income

2013 2012

Insurance income 1 495 1 291

Insurance costs (609) (537)

Net insurance income 886 754

The Company realizes insurance income and insurance expenses related to the option for

rescheduling the payment of monthly instalments. This option gives customers the

opportunity to reschedule the payment of up to three monthly installments when previously

negotiated circumstances occur. The price of this option is included into the initial price of the

loan agreement. According to the definition of IFRS 4 this product meet the criteria for


56

“hidden insurance contract” due to which part of the income from these loans is recognized as

insurance income.

The increase of insurance income and insurance expenses resulted from the growth of the loan

portfolio.

9. Other operating income/(expenses), net

2013 2012

Other income 40 27

Other operating expenses (services rendered by related parties) (442) (394)

Other operating expenses (services rendered to related parties) 192 -

Tax expenses and tax charges (road tax, garbage tax, etc.) (30) (25)

Foreign exchange rate gains/(losses), net 14 229

Loan management fee (508) (142)

Total (734) (305)

Services from related parties are for provided consulting services from the management of

PROFIREAL Group and paid license fees for usage of “PROFI CREDIT” trade mark.

FX gains and losses arise from revaluation of received loan in Czech crowns and also from

opened forward agreements for buying CZK against selling of EUR. Detailed information

about foreign currency transactions and currency risk management is presented in notes 18

and 23 B) below.

10. Income tax

a) Current tax

Current income tax is not charged as a result of the realized tax loss from prior years.


57

b) Deferred tax liabilities

2013 2012 Deferred tax asset

Deferred tax liability

Deferred tax asset


Deferred taxes at the beginning of the year -- 5 -- 8

Changes in the deferred taxes -- -- -- (3)

Deferred tax liabilities at the end of the year -- 5 -- 5

In compliance with the accounting policy described in 2 (i), the tax rate used for calculating

the deferred tax assets is 10%.

Deferred tax assets and liabilities arise in relation to the following positions:

2013 2012 Deferred tax asset


Deferred tax asset


Accelerated tax amortization -- 5 -- 5

Deferred tax liabilities at the end of the year -- 5 -- 5

In compliance with the requirements of IAS 12 “Income taxes”, the deferred tax assets and

liabilities are measured according to the tax rates, which are enacted in the period when the

asset will be realized or the liability will be settled, i.e. the tax rate used to calculate the

deferred taxes is the tax rate that will be applicable in 2013, which is 10%.

As of December 31, 2013 the Company has not recognized deferred tax assets related with

unutilized tax loss carryforward at the amount of BGN 12 988 thousand, due to uncertainty

for generating of sufficient tax profits and utilization of the losses period.

Tax losses arising in Amount Tax effect (10% tax rate)

Expiring in

2009 3 796 380 2014

2010 5 933 593 2015

2011 3 259 326 2016

2012

2013

Total 12 988 1 299


58

11. Cash and cash equivalents

2013 2012

Cash at banks 389 395

Cash on hand - 2

Total 389 397

12. Loans to customers

a) Total receivables on granted loans to customers, net

2013 2012

Receivables on loans to customers, stated at amortizable cost 69 763 53 555

Other receivables from customers stated at fair value 5 160 3 302

Gross receivables on loans to customers 74 923 56 857

Allowances for impairment loss on loans to customers stated at amortizable cost (24 224) (17 334)

Allowances for impairment loss on other receivables from customers stated at fair value (444) (172)

Total receivables on loans to customers, net 50 255 39 351

The carrying amount of receivables on loans to customers, used as a collateral on the received

loans as of December 31, 2013 amounts to BGN 50,255 thousand (2012: BGN 39,351

thousand).

The average effective interest rate (including costs for commissions of loan intermediaries

due upon signing the loan contract) on loans is as follows:

2013 2012

Loans to customers 58.06% 59.41%


59

b) Maturity structure of receivables on loans to customers allocated according to

the installments due under the payment schedule

Receivables of the Company as of December 31, 2013 include the following categories:

Receivables of the Company as of December 31, 2012 include the following categories:

Gross amount of

the portfolio

Collateral

Net amount

of the portfolio

Impairment losses

Carrying amount

Impairment losses

Receivable /installments/ on regular loans 33 854 -- 33 854 495 33 359 1.46%

Overdue receivables /installments/ on loans 19 701 -- 19 701 16 839 2 862 85.47%

Other overdue receivables 3 302 -- 3 302 172 3 130 4.21%

Total 56 857 -- 56 857 17 506 39 351 30.73%

c) Allocation of receivables on loans classified by total amount of loan to a

customer

2013 (%) 2012 (%)

Non-overdue loans 21 365 28.52% 17 885 31.46%

Loans to customers with delay between 1 and 60 days 12 929 17.26% 10 533 18.53%

Loans to customers with delay over 60 days 35 469 47.34% 25 137 44.21%

Receivables to customers related to penalties and other court receivables

5 160 6.89% 3 302 5.81%

Gross amount of receivables on loans to customers 74 923 100% 56 857 100%

Allowances for impairment loss on loans to customers (24 668) -- (17 506) --

Total receivables on loans to customers, net 50 255 -- 39 351 --

Gross amount

of the portfolio

Collateral

Net amount

of the portfolio

Impairment losses

Carrying amount

Impairment losses

(%)

Receivables /installments/ on regular loans 42 415 --- 42 415 651 41 764 1.53%

Overdue receivables /installments/ on loans 27 348 -- 27 348 23 573 3 775 86.20%

Other overdue receivables 5 160 -- 5 160 444 4 716 8.60%

Total 74 923 -- 74 923 24 668 50 255 32.92%


60

d) Granted loans by types of customers, net

2013 2012

Individuals 50 242 39 328

Business loans 13 23

Total 50 255 39 351

e) Geographical concentration of loans to customers

The Company grants loans only to customers with a permanent address registration in

Bulgaria.

f) Ageing structure of loans to customers stated at amortized cost and allocated by

maturity of down payments, gross amount before impairment:

The Company performs an ageing analysis and classification of receivables from customers

based on a monitoring of the individual repayment installments. The table above does not

include receivables from customers related to penalties and other court receivables.

13. Other receivables

2013 2012

Deposits on contracts for leased offices 58 53

Prepaid advances to suppliers and employees 342 70

Deferred financial costs 621 817

Other receivables 88 59

Total 1 109 999

At maturity Past due from 1 to 90

days

Past due from 91 to 180 days

Past due from 181 to 360

days

Past due more than

360 days

Loans as of 31.12.2013 42 415 3 029 2 153 3 713 18 453

Loans as of 31.12.2012 34 070 2 463 1 612 2 770 12 640


61

14. Inventories

As of the date of the statement of financial position the Company has marketing and

advertising materials at stock amounting to BGN 24 thousand (2012: BGN 19 thousand). The

Company has not recognized costs for the impairment of the inventories.

15. Property, plant and equipment

Cars Computers Office

equipment Other assets

Cost of acquisitio

n Total

Cost

Balance as at 1/1/2012 361 326 139 71 -- 897

Additions -- 21 -- 4 107 132

Disposals -- -- -- -- -- --

Balance as at 31/12/2012 361 347 139 75 107 1029

Accumulated depreciation

Balance as at 1/1/2012 (301) (287) (101) (45) -- (734)

Depreciation charge for the year (40) (20) (21) (11) -- (92)

Disposals -- -- -- -- -- --

Balance as at 31/12/2012 (341) (307) (122) (56) -- (826)

Net book value as at 1/1/2012 60 39 38 26 -- 163 Net book value as at 31/12/2012 20 40 17 19 107 203

Cost

Balance as at 1/1/2013 361 347 139 75 107 1029

Additions 447 204 1 19 11 682

Disposals -- -- -- -- -- --

Balance as at 31/12/2013 808 551 140 94 118 1 711


Balance as at 1/1/2013 (341) (307) (122) (56) -- (826)

Depreciation charge for the year (38) (35) (15) (10) -- (98)

Disposals -- -- -- -- -- --

Balance as at 31/12/2013 (379) (342) (137) (66) -- (924)

Net book value as at 1/1/2013 20 40 17 19 107 203 Net book value as at 31/12/2013 429 209 3 28 118 787

The Company has not recognized costs for impairment of property, plant and equipment.


62

16. Intangible assets

Software Others Total

Cost

Balance as at 1/1/2012 120 29 149

Additions -- -- --

Disposals -- -- --

Balance as at 31/12/2012 120 29 149


Balance as at 1/1/2012 (96) (15) (111)

Depreciation charge for the year (10) (4) (14)

Of the disposals

Balance as at 31/12/2012 (106) (19) (125)

Net book value as at 1/1/2012 24 14 38


Cost

Balance as at 1/1/2013 120 29 149

Additions 5 -- 5

Disposals -- -- --

Balance as at 31/12/2013 125 29 154


Balance as at 1/1/2013 (106) (19) (125)

Depreciation charge for the year (8) (5) (13)

Balance as at 31/12/2013 (114) (24) (138)



The Company has not recognized costs for impairment of intangible assets.


63

17. Liabilities on financial lease

Minimum lease installment

Current value of minimum lease

installments

2013 2012 2013 2012

Up to 1 year 127 -- 107 --

Between 1 and 5 years 392 -- 363 --

Over 5 years -- -- -- --

Total 519 -- 470 --

Deferred financial expenses 49 -- -- --

Current value of the liabilities of financial lease 470 -- 470 --

Due up to 1 year 107 -- 107 --

Due over 1 year 363 -- 363 --

18. Other loans received

In 2013 and 2012 the Company has received the following non-bank loans:

As of 31.12.2013

Currency

Balance in thousand currency

units

Balance in

thousand BGN

Interest rate

Amount payable up to 1 year in

thousand BGN

Amount payable up to 3

years in thousand BGN

Collateral

Creditor 1 EUR 18 206 35 608 17.50% 527 35 081

Pledge on receivables from customers and promissory note

Total 35 608 527 35 081

As of 31.12.2012

Currency

Balance in thousand currency

units

Balance in

thousand BGN

Interest rate

Amount payable up to 1 year in

thousand BGN

Amount payable up to 3

years in thousand BGN

Collateral

Creditor 1 EUR 15 210 29 748 17.50% 436 29 312

Pledge on receivables from customers and promissory note

Total 29 748 436 29 312


64

19. Other liabilities

2013 2012

Commissions for loan intermediaries when due 2 451 2 192

Current liabilities for cash commissions of hired staff (loan experts, collectors, managers) 217 213

Deferred insurance income 3 695 3 030

Payables with forward agreements -- --

Staff 470 425

Suppliers 503 492

Social and health insurance 111 100

Tax liabilities 50 148

Guarantee liabilities 286 12

Other 131 114

Total 7 914 6 726

20. Provisions

Provision for insurance claims Other

provisions

Total

Balance as of January 1, 2012 36 -- 36

Accrued provision 538 -- 538

Utilized provision 546 -- 546

Balance as of December 31, 2012 28 -- 28

Balance as of January 1, 2013 28 -- 28

Accrued provision 609 -- 609

Utilized provision 606 -- 606

Balance as of December 31, 2013 31 -- 31

The Company accrues provisions in case of insurance claim on BONUS loan by the customer.

The Company realizes net insurance income (see note 8) when the paid liabilities on

provisions do not exceed the net insurance income.


65

21. Share capital

The registered share capital amounting to BGN 3 250 thousand is allocated as follows:

As of

31.12.2013

% As of 31.12.2012

%

Profireal Group S.E., the Netherlands 3 250 100% 3 250 100%

3 250 100% 3 250 100%

In 2012 the share capital of PROFI CREDIT increased by BGN 3,000,000, as 1 200 new

Company’s shares were issued, with a nominal value at the amount of BGN 2,500.00 each.

All Company’s shares were acquired by PROFIREAL GROUP S.E. The new shares are

subscribed and acquired at an issuing value of BGN 22,166.07 per share. The total value of

agio (the difference between the issuing and nominal value) for the new 1 200 Company's

shares, namely BGN 23,599,284.00 BGN is mainly attributed to cover all accumulated losses

from previous years. The capital was increased with debt to equity transformation at amount

of EUR 13,600,000.00 equivalents to BGN 26,599,288.00. PROFIEREAL Group S.E. has

bought these receivables from third party creditor of PROFI CREDIT Bulgaria.

22. Equity

As of December 31, 2013 the Company reports positive equity at the amount of BGN 8 552

thousand (2012: 4 486).

23. Risk management

The Company’s business is exposed to various financial risks. Taking financial and operating

risks inevitably accompanies Company’s financial activity.

The Company has adopted and implemented procedures for risk management and control for

the purpose of estimation, management and control of the extent of risk, to which it is

exposed. The risk management and control rules and procedures are approved by the

managing directors.

The risk policy and risk management and control rules set the criteria and limits for various

types of risks such as strategic risk, credit risk, liquidity risk, interest rate risk, currency risk,


66

investment risk and counterparty credit risk. The risk policy’s main goal is to set clearly

defined parameters for Company’s operations so that the maximum potential negative effect

of the risks over the Company’s financial results could be mitigated. Adherence to risk

management rules and procedures is followed regularly, depending on the level of risk and its

potential impact on the Company’s activities. Any diversion of the adopted internal standards

is reported to Company’s management and the respective measures are taken. In addition, the

Company estimates annually the adequacy of the adopted risk management policies, based on

an analysis of economic trends and the environment, in which Small and Medium-sized

Enterprises in Bulgaria operate as well as an analysis of certain business sectors such as the

construction and tourist ones.

a) Credit risk

Credit risk is related to the possibility that part of the counterparty may fail to pay its

liabilities under financial instruments, which may cause financial loss to the Company.

Credit risk is the main risk for the Company’s activity. Therefore the Company carefully

follows and manages its credit risk exposure. Rules about Company’s credit activities and

lending procedures are developed by the Product Department and approved by the managing

directors.

The main financial assets of the Company comprise cash and cash equivalents (note 11) and

extended loans to clients (note 12). Credit risk relates mainly to customer loans. The amount

of receivables is presented in the statement of financial position net, less impairment loss on

receivables, which is calculated on the basis of past experience of the Group and the

Company, as well as under the influence of current economic conditions, affecting customers’

solvency.

• Collection of receivables

The Company has developed its own network of employees (collection coordinators), as well

as credit intermediaries for collection of its receivables.


67

• Securitization

Credit risk is diversified between significant numbers of clients all over the country. Part of

the loans is secured by third parties - guarantors.

b) Liquidity risk

Liquidity risk is the risk of lack of cash for coverage of due liabilities or for repayment of

customer loans, which could arise from disparities in the Company’s cash flows..

The table below represents analysis of the non-discounted financial liabilities classified by

maturity structure according to residual term of maturity:

Financial liabilities as of 31.12.2013

At disposal up to 7 days

Up to 3 months

From 3 months to 1

year

From 1 year to 5 years

Over 5 years

Liabilities on finance lease -- 24 83 363 --

Other loans received -- 1 533 4 690 41 306 --

Other liabilities -- 1 247 748 1 562 --

Total -- 2 804 5 521 43 231 --

Financial liabilities as of 31.12.2012

At disposal up to 7

days

Up to 3 months

From 3 months to 1

year

From 1 year to 5 years

Over 5 years

Liabilities on finance lease -- -- -- -- --

Other loans received -- 1 263 3 854 39 977 --

Other liabilities -- 1 041 670 1 297 --

Total -- 2 304 4 524 41 274 --

c) Currency risk

Currency risk arises with respect to changes in the value of the financial instruments, due to

significant changes on the exchange rate markets. The difference in the levels of financial

instruments, and assets and liabilities, denominated in foreign currency, respectively, shows

the extent to which an instrument is exposed to currency risk. Information of the Company’s

exposure by currencies as of the end of 2013 and 2012 is presented in the table below:


68

Currency risk as of 31.12.2013 BGN EUR CZK Total BGN

Assets

Cash and cash equivalents 383 6 -- 389

Customer loans 50 255 -- -- 50 255

Other receivables 1 107 -- 2 1 109

Total assets as of 31.12.2013 51 745 6 2 51 753

Liabilities

Liabilities on finance lease -- 470 -- 470

Other loans received -- 35 608 -- 35 608

Other liabilities 7 518 299 97 7 914

Total liabilities as of 31.12.2013 7 518 36 377 97 43 992

Currency risk as of 31.12.2013 44 227 (36 371) (95) 7 761

Currency risk as of 31.12.2012 BGN EUR CZK Total BGN

Assets

Cash and cash equivalents 387 7 3 397

Customer loans 39 351 -- -- 39 351

Other receivables 999 -- -- 999

Total assets as of 31.12.2012 40 737 7 3 40 747

Liabilities

Liabilities on finance lease -- -- -- --

Other loans received -- 29 748 -- 29 748

Other liabilities 6 446 40 240 6 726

Total liabilities as of 31.12.2012 6 446 29 788 240 36 474

Currency risk as of 31.12.2012 34 291 (29 781) (237) 4 273

The Company operates in EUR, CZK and BGN. Consumer loans are extended only in BGN.

The exchange rate EUR/BGN is fixed in compliance with an agreement between the Republic

of Bulgaria and the International Monetary Fund, as well as in compliance with Bulgarian

National Bank Act.

d) Interest rate risk

Interest rate risk is associated with the potential adverse effect on Company’s net income and

value of equity due to fluctuations in the interest rates. Extended and received loans bear fixed

interest rate. In this respect, management believes that the activity of PROFI CREDIT


69

Bulgaria is not highly sensitive to fluctuations of the interest rates on the world financial

markets.

The following table summarizes the effective interest rate for financial instruments as of the

end of the respective calendar year:

2013 2012

Assets

Customer loans 58.06% 59.41%

Liabilities

Bank loans -- --

Other received loans 17.50% 17.50%

Liabilities on finance lease 5.4%

e) Price risk

The Company operates in a highly developed and competitive market for financial services,

and therefore is influenced by price risk. Parts of the Company’s competitors are banking and

financial institutions with access to cheap financial resources which gives them an advantage

in the pricing of competitive products.

f) Market risk

The Company is exposed to different market risks. The market risk is related to the possibility

that future changes in the activities of the Company may occur. Market risks arise in relation

to the positions of the Company in interest, foreign currency and other financial instruments,

which are dependent to a certain extent on the changes in the general and specific market

conditions, such as changes in interest rate levels, loan margins, exchange rate differences,

capital instrument prices and others. The Company has developed and adopted rules and

regulations to determine, manage and control the extent of risk to which the Company

is exposed when performing its activities. The main objective of the risk policy is to apply

well-defined parameters for the activity of the Company, so that the risks to which the

Company is exposed can be adequately limited. PROFI CREDIT Bulgaria measures the

market risk of its net book value positions and the maximum amount of the expected losses

on the basis of forecasts for different changes in the market conditions. Internal risk

management systems are developed along with the expansion of the activity of the Company

to ensure maximum control over each risk category.


70

24. Events after the reporting date

They are no adjusting events arisen after the date of preparation of the statement of financial

position.

25. Related parties transactions

a) Other receivables, other payables and other loans received

The following balances between related parties are included in other receivables, other

payables and other loans received:

The payable to PROFIREAL Group as of December 31, 2013 to the amount of BGN 283

thousand (2012: BGN 14 thousand) represents a payable for established guarantee on utilized

loan.

The payable to PROFI CREDIT Czech, a.s. as of December 31, 2013 includes: payables for

received consulting services amounting to BGN 122 thousand (2012: BGN 256 thousand) and

payable for use of trade mark amounting to BGN 57 thousand (2012: BGN 45 thousand).

b) Sales and purchases

Sales for the period Purchases for the period

2013 2012 2013 2012

Profi Credit Czech,a.s -- -- 344 358

Profireal Group -- -- 1 1

Other relater parties 192 -- -- --

Total 192 -- 345 359

Receivables Payables

2013 2012 2013 2012

PROFI CREDIT Czech as. -- -- 179 301

PROFIREAL Group -- -- 284 14

Other related parties 242 42 -- --

Total 242 42 463 315


71

c) Interests and loan guarantees

Interest expense Interest income

2013 2012 2013 2012

Profireal Group 409 148 -- --

Total 409 148 -- --

d) Accrued remuneration and salaries to management

2013 2012

Number of members 4 4

Remuneration accrued 511 215

Other (social security, health insurance, etc.) 14 4

Total 525 219

26. Global economic crisis

Since 2008 as a result of the global economic recession, that has affected various industries

and sectors in the Bulgarian economy, a decline in the economic development has been

marked which causes material uncertainty and risk for their development in the foreseeable

future. The declining rates of economic development increase the risks for the economic

environment in which the Company operates. Therefore, the amount of impairment losses on

loans and receivables, financial assets available for sale, other financial instruments, as well

as the values of other accounting estimates in subsequent reporting periods may differ

substantially from those measured and reported in these financial statements.

The recoverability of the loans and the adequacy of the recognized impairment losses depend

on the financial position of the borrowers and their ability to settle their obligations

at contracted maturity in subsequent reporting periods. Company’s management applies the

necessary procedures to manage these risks, as disclosed in note 23.


72

7. CONTACTS

Company Name:


Company Seat:

49 Bulgaria Blvd., bl. 53E, entrance V

1404 Sofia

Mailing Address:

49 Bulgaria Blvd., bl. 53E, entrance V

1404 Sofia

Legal form:

Sole-owner limited liability company

Identification Number:

175074752

Tax Identification Number:

BG175074752

Tel.: +359 2 40 32 500

Fax.: +359 2 40 32 501

e-mail: [email protected]

Documents

ANNUAL REPORT 2013 PROFI CREDIT Bulgaria EOODPROFI CREDIT Bulgaria EOOD 3 CONTENTS 1. THE PROFIREAL GROUP 4 2. LETTER FROM THE CHIEF EXECUTIVE OFFICER 7 3. CHARACTERISTICS OF PROFI